5 Things Every Entrepreneur Should Know Before Taking on an Investor
When you're pitching investors, it can feel like your fate is in their hands. But it's a two-way street -- you're also auditioning them to figure out if they'll help your company or bring it down. The truth is, investors are potential mentors, advisors and introduction-makers, so they don't simply need to believe in your company: They need an effective management style and a network you can benefit from. Here are some questions to ask investors to find out if they can provide that.
"How do you add value to the companies you currently invest in?"
Keep your needs in mind (new hires? more mentors?) and see if the investor provides that to their other companies. Does what they care about most (company culture? marketing?) line up with what you're looking to improve? Be wary of anyone who tells the companies they invest in what to do. You want someone who will offer guidance without being pushy.
"How would you improve our product/service?"
While investors' expertise is invaluable, you want someone who shares and trusts your vision. If they want to take your company in a totally different direction, working together could create conflict. Instead, look for someone who has the same ideas you've thought of, suggestions for executing ideas you weren't sure how to execute, or ideas that hadn't occurred to you but are in-line with your mission.
"How would you solve this particular problem?"
This question tests the same traits as the previous one, but it also can tell you whether the investor sees the big picture. Instead of focusing on the technicalities of the solution you've developed, which could change, find someone who understands the problem you're trying to solve and all the ways you could solve it. As you expand to offer more solutions to your customers, you'll want people who dream big on your team.
"Who do you turn to for advice?"
When you gain an investor, you're really gaining their whole network. So get to know them and find out who they're connected to. While knowing lots of investors may seem like the most important thing, connections to the startup community are actually more useful. If it's not listed on Angellist or LinkedIn, ask what other startups they've invested in.
"How often do you talk to your other companies?"
Finding an investor is a bit like dating. You don't want someone who ghosts you, but you also don't want someone who texts you every hour of the day and yells at you for not responding. Look for someone who trusts you but is there when you need them. A good answer to this question would be, "Once a month and whenever they need my help." Once a week or more should set off alarms.
To continue with the dating analogy, finding an investor is less about how successful they are or how much potential you have, and more about chemistry. If your goals conflict, the relationship will feel constricting in the long run, no matter how much short-term benefit it provides. But if you get along and have a lot in common, you'll both make each other better.